China's Banking System in Claymation

12/19/2013 10:22PM

China's leaders are well aware that there's too much infrastructure spending and too little spending by consumers, and they're trying to "rebalance" the economy by easing interest rates and adding deposit insurance. The WSJ's Ken Brown explains China's financial system—with some help from claymation.

This transcript has been automatically generated and may not be 100% accurate.

... I ... one thing very well and it's been twenty ... nine EC version ... has drawn to the state-owned Chinese companies ... to get near the money goes to the Chinese state-owned banks ... the problem is this of course the distortions in the Chinese economy ... this beach or spending on infrastructure and none of spending by Chinese consumers ... here's how the system works ... thanks to low interest rates to depositors ... and then landed low rates of state-owned companies ... we're still big expensive projects like high speed rail trains run ... and since the rates are fixed things to keep guaranteed profit ... China's leaders know they need to ... spending ... and boost ... by consumers ... they also know that the future success of China ... lies in its innovative companies companies like Alibaba and Tencent ... the column is the big banks don't lend money to those small companies and they tend to be starved of catch ... the answer ... the small banks ... they actually lanes to small businesses ... that's one reason China screen of interest rates ... this allows banks to pay more to savers ... and what's the charge more to their borrowers ... and that allows them to lay into riskier businesses ... the U S banking system went through something similar in the eighties ... back then banks of the few toasters ... because they couldn't compete on deposit rates is an added benefit to loosen up interest rates ... low rates of what Chinese savers to put that cash into inflated real estate markets ... a risky investment products to get higher returns to give people confidence to put the money in the small banks ... the governor will likely start deposit insurance which will tell the Sabres that the money is safe in all of these banks ... the question is will the changes the big enough to make a difference inside China ... the question is will the Chinese government able to overcome